Overview:
The Nasdaq and the Semiconductor Index are closely linked with one another, similar to the DOW and Transports. In other words, a major market trend cannot happen without one confirming the other. If you see a divergence take place between the Nasdaq and the Semiconductors, then something has to give, in other words, these two sectors can only diverge for so long.
As an example, if the Nasdaq is rallying, but the Semiconductors are falling behind or breaking down, then the Semiconductors need to rally soon, otherwise the Nasdaq will soon breakdown as well and the rally will end. Likewise, if the Nasdaq is falling, but the Semiconductors begin to rally, this may be an indication that the Nasdaq will soon recover and rally as well.
When using this indicator, look for divergences between the Nasdaq and the Semiconductors as an early indication that a major trend change is about to take place
When the Ratio is trending up, then the market can support a rally.
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